Everything You Need To Know About Buying A Rent To Own Home

rent-to-own home

Ready to own your own home but don't quite have the money you want for a down payment? Maybe you don't qualify for a mortgage yet but you know homeownership is the way you want to go. If so, rent to own might be just what you're looking for. From San Diego to Dallas to Hartford, Connecticut, there are rent to own properties for sale across the US that give renters this unique option to essentially buy a property slowly over time.

Never heard of it before? Familiar with the concept but not quite sure how it works? Trying to decide if rent to own is right for you? Here's everything you need to know about buying a rent-to-own home.

What is rent to own?

A rent to own home, whether it's a single family home or a condo, is property for which there's an agreement between the tenant and the landlord or seller that the renter has the option to buy the home eventually. This is typically an arrangement that individual sellers offer much more frequently that corporate sellers do.

Each agreement and situation is different. There's nothing stopping you and your landlord from striking whatever rent-to-own deal works best for your situation. But generally rent-to-own agreements outline that a certain portion of the monthly rent payments made are earmarked for a down payment that will eventually be used to buy the property they're renting.

Generally rent-to-own agreements are in place for something like three years. Often there are additional payments made that go towards the down payment as well. These agreements usually outline what the purchase price of the home will be as well.

How does rent-to-own work?

Whether you're looking for rent-to-own properties in Miami or Madison, rent to own works in two ways no matter where you're looking to buy.

"There are two kinds of rent-to-own contracts: lease-purchase and lease option," explains Chase Bank. "With a lease option contract, you have the option to purchase the home after a time period you and the property owner have agreed upon. With a lease-purchase contract, you're legally obligated to buy the home at the end of that period."

Rent-to-own tips and tricks

One important thing to know about the rent to own realm is that it's full of predatory scams. As the experts at Rent To Own Labs note, the process "tends to attract first-time home buyers who have less experience in buying homes and, unfortunately, because of this, there are many rent to own scam artists hoping to trap naive rent to owners." There are a few ways to avoid these pitfalls:

  • If your agreement sounds too good to be true, it probably is. Because there's often an upfront fee to start the process, if you come across an amazing deal, there's a chance the scammer will take your money and run, sticking you with the loss.

  • Research the seller. Use public records or enlist the help of a real estate agent to ensure that the seller truly owns the home they've listed. Make sure there aren't any liens or tax claims on the property.

  • Consider hiring a lawyer. Once you sign a contract, you're beholden to it. A few hundred dollars to have a lawyer look over your contract to ensure that it's fair, reasonable, and not predatory can save you many more costs down the road.

Is rent-to-own worth it?

Especially if you have less than amazing credit, don't qualify for a mortgage at the moment, or want more money for a down payment than you have right now, a rent-to-own agreement could be the right path for you. But there are upsides and drawbacks to consider.

The pros and cons of rent to own

  • Pro: You don't have to wait for external approvals. If you're nearly to the point of qualifying for a mortgage but aren't quite there yet, a rent-to-own agreement can set you on the path of homeownership before you qualify for the necessary funding to do so.

  • Pro: You can build equity while renting. One of the main reasons people want to get away from renting is because it doesn't build equity. While the majority of your rental fee is still going to the landlord, some of it is going towards building equity in a property. And that can be a smart investment decision.

  • Pro: You're usually not required to buy the house in the end. Contracts can be written up to dictate any terms, but generally rent-to-own agreements don't require the renter to buy the home in the end, which is great if you might change your mind.

  • Con: These agreements are few and far between. You have to find the right owner with the right property in order to rent a home that you eventually want to buy. Unless a landlord is getting ready to sell their property anyway in the next couple of years, it's going to be hard to find someone willing to part ways with their rental property.

  • Con: You can lose money if you don't buy the house in the end. If you don't buy the house after all, chances are the agreement will be structured in a way that you lose some or all of the money that had been going towards the down payment.

  • Con: You aren't guaranteed financing when the agreement is up. If you're going to rely on a mortgage to eventually buy the property, it's up to you to make sure you qualify for a loan within the timeframe of the agreement. If not, you can be stuck with no way to actually buy the house in the end.

Buying a home through the rent-to-own process is no small feat. But if you do your research and find the right seller and the right property for sale, the extra effort can pay off in the form of an affordable approach towards the home of your dreams.